Whilst at Bestinver 1993-2014, Parames’s returned 15.7% per annum in his Spanish equity fund, equivalent to 2,279% compounded compared to 410% for the Spanish index. In 1997 he also began to manage an international portfolio, which returned an average 10.6% per annum versus 2.9% for the MSCI World Index. He left Bestinver due to a difference of opinion over whether to take on more capital. He felt that at $10bn euros the fund had become too big.

Temperament is more important than IQ for success in investment management. He qualified this by saying that you manage risk by knowing what you are doing. Studying companies in depth is important – if you don’t it will lead to mistakes. You can reduce risk by buying assets that have gone down a lot in price.

His approach to valuation is to buy good businesses trading on less than 10x earnings. He looks for companies with high returns on capital. He said that one of the things he wished he had learnt earlier in his career was to invest in better quality companies. Joel Greenblatt’s Little Book That Beats the Market helped him to develop this side of his game and to avoid value traps.

A distinctive feature of Parames’s style is that he actively changes the size of his positions in companies. The names in his portfolio do not change that often but under the surface there is a high turnover of money. All things being equal, if one stock in his portfolio goes up by 20% and another goes down by 20% he moves money from the winner to the loser.

In terms of sell discipline, he only sells when there is something better to buy. “We almost never go to cash.” The current market is on the expensive side but it is not in a bubble.

Teekay is his first shipping investment in 27 years of investing. It is the main investment in the new Corbas fund – about 9% of the portfolio. Teekay is a family owned company. He trusts family owed companies to keep watch on management and over his career about 80% of the investments have been in family owned businesses. Shipping is cyclical, leveraged, tends to have low returns and can be a lousy business.

Teekay Corporation currently receives $40m in payments per annum from its subsidiaries but before the collapse in the oil and gas price it received much more. The largest subsidiary, Teekay LNG Partners, is expected to return to paying the parent company $100m a year as it did in 2014 and 2015. Given these cash flows Parames’s thinks that Teekay Corporation is worth $19.5 per share (it is trading around $6.40).

Teekay LNG is the key to the valuation. It is trading at 5-6x FCF. It is leveraged 50-60% of assets - lower than most other shipping companies that are in the 70-90% range. Compared to most other shipping businesses LNG companies work on very long-term contracts with companies like Shell and Total. Free cash flows will increase every year for the next 10 years and are predictable. He expects an IRR of 18% per annum.

Parames noted that it was the first time in his career that he had seen a stock’s price fall 75% with no change in the earnings estimates.

Stuart Roden and Peter Davis managed Lansdowne’s flagship long/ short equity fund, The Developed Markets Strategy, until the end of 2014. Since then he has taken on the role of Chairman.

He does not regard himself as a value investor or a growth investor - he is eclectic. He likes to focus on situations that involve change typically at an industry level rather than a company level.

Investment managers need to have an appetite for risk and be able to cope with loss. Most of Lansdowne’s employees have First Class degrees but he said that sometimes very academic people particularly from a science and maths background cannot deal with uncertainty. It’s partly due to not being used to things ‘not working out’ but also because they may not have experienced enough set-backs in life. “The stock market can make a fool of you for quite a long time.” Fund managers need common sense as well as brains and managers need to understand that they may be wrong. You can’t control events and things are going to happen that you are not ready for – you will be shocked at times. If you can’t deal with that level of uncertainty it can make you emotionally unstable.

At Lansdowne, they encourage their portfolio managers to get four things right. Firstly, you need a creative idea. Secondly, strong analysis. Thirdly, risk management and correlation control to make sure that you are not missing a risk that runs throughout the portfolio. Fourthly, monitoring. He likes Barton Biggs’s advice on portfolio management: ask yourself is this the portfolio you would build today? His role was often to be ‘questioner in chief’. He watched out for thesis creep. Do the reasons why you wanted to buy a stock in the first place still hold true? Do you need to change your view? If you can’t change your view you won’t make it as a fund manager.

He values imagination pointing out that they made a very successful investment in Amazon by thinking creatively about the way Amazon would look in 3-5 years. This was not a momentum trade but instead required long-term thinking. They were only able to make the investment because they did not hold a static view of Amazon’s valuation.

If you can find two people who complement each other partnerships work very well in investment management. He said three people was too many. He was very lucky to have worked with his partner, Peter Davis. There was something about their partnership that worked, they were very different people, their emotions were different, Davis was optimistic whereas he was looking over his shoulder the whole time to see what might go wrong – a combination of confidence and humility. There was also an age gap that avoided them becoming competitive. Good partnerships require respect and mutual admiration.

Given the state of the markets, if he was opening a fund today it would be a long/ short fund and not a long-only fund. In the past 16 years when a lot of Lansdowne’s shorts have been in indices rather than single stocks the markets have tended to go up. Today all their shorts are in single names. Shorts are easy to find because there are so many businesses being hurt by disruption. When he first started he was often confident that they could hold equity investments for at least 5 years but today he feels that has shrunk to 3 years. There is so much uncertainty – not just in interest rates and valuations.

Phoenix is a UK focused fund that since inception in 1998 has returned 12% annualised vs the 4.9% for the UK benchmark.

Long: Easyjet (LON: EZJ)

There is an intrinsic human desire to travel. GDP per capita and the cost of travel drive the overall market. Air travel has been doubling about every 12 years. Yet airlines have been terrible businesses except for Southwest Airlines in the US. The Southwest model has been copied by both Ryanair’s and Easyjet’s founders.

It is often assumed that Ryanair and Easyjet are competing. Ryanair is thought of as the low-cost producer and to be more effective than Easyjet. Channon argued that the two airlines have different strategies and are not competing. They do not fly the same routes – there is only 4% overlap. This is not an accident but a deliberate strategy. Easyjet takes customers from convenient airport to convenient airport. Ryanair is low cost - inconvenient airport to inconvenient airport. Both companies produce a similar return on capital.

Easyjet has a moat which is underappreciated by the market. The moat is derived from the slots it owns. The slot is the right to take off and land at a certain time on a certain day. The slots are regulated by quasi-legal international conventions referred to as Grandfather Rights. The slots belong to the airlines not the airports. A slot can provide pricing power if it is at a sought-after airport where demand outstrips supply. The lack of runways in the UK and Europe and the failure to build new ones guarantees a shortage of supply. Because of the value of slots airlines tend to be against the expansion of runways while the owners of airports tend to be supporters.

The slots provide a barrier to entry as people’s propensity to switch airports is limited. Only 20% of passengers are prepared to add an extra hour to their travel if they are on a short-haul European flight. Easyjet’s real competitors are those who fly the same routes from busy airports - mainly British Airways and Air France but certainly not Ryanair. British Airways and Air France are not strong competitors to Easyjet because they have structurally higher costs due to pension schemes, staffing costs and culture. This creates an environment in which Easyjet will keep expanding, gradually taking the flag-carriers business.

Channon estimates that three-quarters of Easyjet’s business is protected by a slot-constrained moat. This provides pricing power and high returns.

The opportunity for Phoenix to invest in Easyjet came about because of Brexit. Channon said he thought Brexit was a non-event for Easyjet. It does not change the competitive landscape and Easyjet will get a European license. Phoenix bought their Easyjet stock 9 months ago. Channon said he would not buy today but would wait for the price to fall below £10 per share (the stock is trading at around £13.80).

Even though Train regards himself as a value investor he has changed his investment style considerably in the last 20 years. He quoted Michael Lewis:

“Graham and Dodd investors are people who place a very high price on having the last laugh… “

“….in exchange for that privilege they have missed out on a lot of laughs in between.”

Train missed the TMT boom in the 1990s, not owning any technology stocks. He missed both the boom and the bust but the experience left him feeling dissatisfied. As a traditional value investor, he felt that he had been ill equipped to analyse and deal with an historic, world changing and enormously value creating technology shift. He felt his traditional value investor’s mindset had blinkered him and revealed some limitations. The value discipline had led him to spend too much time looking at cycles and not enough time looking out for trajectories. He had been waiting for years for reversions to the mean that did not happen and not enough time looking for self-reinforcing trends. He felt he had missed the whole point of what creates long-term equity value.

Today he believes the single most important thing that they can do is to extrapolate long term trends. Cycles are irrelevant. Today he likes to invert Howard Marks’s well-known quote:

“Ignoring cycles and extrapolating trends is one of the most dangerous things an investor can do.”

He gave global whisky shipments as an example of a re-enforcing trend that has continued to grow over the last 100 years. There is no sign of cyclicality or reversion to the mean and he says he expects the trend to continue for the next 30 years. Similarly, he noted that £1 invested in the UK Engineering Industry in 1900 would have grown to £2283 today while £1 invested in the UK alcohol Industry would have grown to £243,152. Again, he expects this trend to continue and it is a reason why Lindsell Train have a large investment in Diageo.

It’s far better to lock into the value creating trajectories and leave the tricky cyclical-type trades alone. The stock market is better viewed as a trajectory rather than a series of potentially ruinous ups-and-downs.

Value investing with its focus on cyclicality can make us too prone to cynicism and pessimism. Optimism is hard but if you hold on to those investment trajectories you will benefit from looking on the bright side.

Everyone has their favourite Buffett quote. Train said that the one that resonates most for him is that the best holding time is forever. “My starting point is that I’ve made a permanent/ semi-permanent commitment to a franchise and I am prepared to ride through the fluctuations.” If the trajectory that we are trying to capture turns out to be misplaced or the company cannot deliver on what we are hoping for that’s a reason to sell. The other reason he would sell is if the balance sheet is deteriorating to such an extent it is threatening the survival of the company.

Django Davidson is a portfolio manager and founding partner of Hosking Partners where he works with Ex-Marathon Asset Management investor, Jeremy Hosking. Before that Davidson worked at Algebris.

Hosking Partners refer to themselves behavioural investors. He noted that once people form an opinion they do not like to give it up. We get a rush of dopamine when people agree with us. Having people agree with you is the crack-cocaine of the middle-aged dinner party circuit. Sticking to your guns is a widely perceived social good. Humans attach a huge premium to ideas they already have.

Davidson warned that the belief in Buffett style quality compounders/ franchise stocks in the investment world has taken on something close to religious dogma. The huge outperformance of quality compounders particularly since the financial crisis has led Davidson to take an outsiders view. Shareholder returns for many quality compounders have been very good over the last 5 years while their revenues have gone down - Kellogg’s, Coca-Cola, Pepsi, Colgate Palmolive. The margins of quality compounders have been on a continuous three-decade rise but if the underlying moat premise works the revenues should be rising and they are not.

The danger is that the customer is not coming back as often as they used to. Jeff Bezos says that power is shifting from the company to the consumer. Technology is empowering the customer challenging companies to change. According to Bezos the best way for companies to respond is to put all their energies into creating a great product and put less effort into shouting about it through marketing. The old model is shareholder centric whilst the new model is customer centred.

The old shareholder focused companies used to be the only ones that could afford TV advertising. Now two-thirds of the screen times of under 25 year olds is spent on hand-held devices. When they do watch TV, they self-select their own channels. Linear TV is being propped up by an aging demographic. Today new businesses can reach their customers through social media and YouTube at a fraction of the cost. Often, they have better products to sell.

Why are customers leaving the old brands? Are the brands staying relevant in a multi-channel world? How will these brands react to people ordering their shopping through Amazon Alexa? What will the industry have to spend to retain customers? Are companies gouging their customers by providing low quality, high priced goods? Franchise investing appears to be a warm and cosy place, but is it?

Since inception in June 1993, Steve Romick’s FPA Crescent Fund has returned 10.4% annualised Vs 7.0% for the MSCI World Index.

A few stocks drive the index at any one time. Contrary to popular belief you don’t need to hold the golden stocks of each era to win at investing. You can win by avoiding the losers. His fund typically underperforms in bull markets but outperforms by more in bear markets. Stocks are expensive today and he is finding it hard to find good investments. He outlined an example of how he has been putting some of the fund’s money to work outside of the equity market.

The fund has provided a loan to Sears Canada. The company is facing the same pressures as many other retailers and may go bankrupt at some point. Given their tenuous finances the loan has been secured against inventory, receivables, and real estate. He estimates that the liquidation value is about 1.7X the loan value. Romick expects the loan to produce an IRR of 11% no matter what happens to Sears.

Standard Chartered are exposed to emerging markets and the shares are down two-thirds from their peak. As usual as the price has gone down more analysts have given sell ratings. As a deep value investor, he is not interested in consensus profit or what profit a company generated last year. He tries to think about profit through the cycle. Murphy likes to use deposits as a measure of value for banks as they are highly cyclical. With interest rates so low you could consider deposits as float and not a liability. Standard Chartered has extreme liquidity.

Compared to other banks that focus on emerging markets Standard Chartered looks cheap if measured in terms of deposits but not so cheap measure by profit. Why has it failed to produce better profits? The main reason is low interest rates.

Standard Chartered came through the Asia Crisis and the credit crunch well. Murphy thinks its balance sheet could withstand another crisis if one arose. If interest rates go up Standard Chartered will do well.

Ladbrokes has been underperforming. It botched the introduction of a new IT system a few years ago. The merger with Coral that was announced about a year ago has created a bigger player and significant cost savings should be achieved. It will also strengthen Ladbrokes’s online presence. At present 70% of revenues come from offline, from the retail estate – 3000 bookmaker shops. Expect margins to improve. Coral delivered 36% CAGR between 2008-2015.

The stock is cheap due to the potential regulation of online gambling. The government is investigating Fixed Odds Betting Terminals (FOBTs). His worst-case scenario is that the government could ban B2 games completely. B2 games have the highest stakes and are very profitable. If banned they could lead to a 12% loss in the company’s value. In this scenario in the longer term, he believes the betting shops would remain profitable and that online would restructure and come back over time. If government regulation is less draconian Ladbrokes Coral could see anything between 50-70% upside.

Over time expect the online share of Ladbrokes’s business to grow to about 50%.

Long Ultra Electronics (LON: ULE)

Defence spending has been falling as a percentage of GDP since the withdrawals from Afghanistan and Iraq – it is at post-war low in the US and UK. Going forward there are long-term proposals put forward by governments to increase spending. It is possible that the Trump administration will bring about much higher spending.

Wright thinks that future spending will be focused on more sophisticated foes in the areas of cyber, communication & surveillance and underwater. These are key areas for Ultra.

Ultra had a setback in 2014 when its largest contract in Oman fell through. Today, free cash flow is beginning to recover. Ultra’s business had been built via M&A resulting in duplication of cost centres. Their S3 programme will better integrate the units and achieve cost savings.

The company is not particularly cheap trading on a P/E 15 but it is cheaper than most of the market.

Wendel is a holding company based in France that invests in a variety of industries. It usually takes control positions and at the very least it has significant influence. The Wendel Family has overall control but professional managers run the day to day operations. They are drawn to Wendel by:

- Attractive combination of assets
- Most of their companies sell products that are vital to other companies
- The stable and long-term capital structure
- The overlap of the businesses philosophy with their own
- A double-digit discount to NAV

Samsung SDI is one of the few companies globally that can make good quality electric car batteries. The stock is trading at close to book value.

He expects the electric car market to grow quickly. In Norway where they are subsidised, electric vehicles already have 29% market share. Electric vehicles only have 1% market share globally. As technology allows electric vehicles to come down in price to compete with the internal combustion engine expect sales to rise.

Will there be enough batteries to go around? He thinks demand could outstrip supply.

Sum of the parts valuation: net cash and financial investments + chemical business + Samsung Display (which makes screens for smart phones) = $8-14bn + battery business – if he is right about the growth of electric vehicles it could be worth a lot.

Samsung SDI’s market cap today = $8bn. If they are wrong they don’t lose much and if they are right it could be a big winner.

Charles Heenan does not buy companies that are trading for more than 12x earnings. He looks for quality sustainable franchises that are suffering temporary headwinds. He tries to take advantage of market over-reactions by focusing on the underlying health of a company, not a narrow view of short-term growth.

Texwinca’s share price has fallen over 50% in the last 5 years. It is Kennox’s fourth largest position. It supplies the leading clothes retailers with textiles. It is the market leader and a quality company. It has the capacity to deliver materials to retailers to the tightest schedules.

Texwinca’s environment and labour standards are good and need to be because of increased regulation. The management is conservative and competent. The company has minimal debt and net cash is 50% of market cap. It is cheap at 6x sustainable earnings. The dividend is 10%.

Asset Value Investors specialise in investing in companies trading at below realisable book value. They do not look at recorded book values or NAVs but instead do the work themselves. They can only achieve accurate valuations in companies that are open, transparent with managements that are prepared to talk to them.Long: Wendel SE (EPA: MF)

Wendel is listed in France and is primarily engaged in owning assets or securities of other companies. It’s a family run business (36.4%) with a long-term focus. The management have proved themselves to be good capital allocators but they did buy St Gobain in 2007 which turned out to be awful timing. They are now reducing the stake in St Gobain and paying down debt. Despite the St Gobain purchase Wendel has handily beaten the MSCI Europe return since 2005: 9.1% Vs 5.5%

Wendel owns 12 businesses. The unlisted part of the portfolio has the most potential to act as a catalyst. It has 4 assets all of which have been identified for IPO by the end of 2018. The IPOs could add 8% to NAV. Bauernfreund estimates that Wendel is already trading at a 29% discount to NAV.
AVI own 1.3% of Wendel’s outstanding shares.

He also mentioned 3 other investment ideas. Long Hudson Bay (TSE: HBC), Long Symphony International (LON: SIHL) and Long Toshiba Plant (TYO: 1983).

Ronald Chan pitched Hong Kong listed property company Far East Consortium. Run by David Chiu the company is involved in property development, car parks and hospitality. Chan made the case that Far East Consortium was cheap compared to the other large property companies in Hong Kong such as Sun Hung Kai, Henderson Land, Chinese Estates and Lai Sun Development. Far East Consortium trades at a 54% discount to NAV. P/E 6.6. P/B 0.7. Net Debt to Equity = 68.8%.

Rhys Summerton set up Milkwood Capital in 2013. Around 30% of Milkwood’s capital is Rhys’s own money.

Milkwood is highly concentrated, holding 8-10 companies. Milkwood has a mandate to invest anywhere in the world but currently the fund is 70% invested in the UK. Summerton has two areas of idea generation at the moment: 1. unloved winners 2. companies that operate in the US but are listed elsewhere.

Long John Menzies (LON: MNZS)

In 1998 John Menzies sold its shops to WH Smith, leaving them with a distribution business. Menzies then tried their hand at a number of businesses including The Early Learning Centre. They also moved into airport services. Today John Menzies has three businesses: distribution, airport services and fuel distribution to aircraft. Menzies has recently announced that it is going to sell off the distribution business by merging it with DX Logistics.

Menzies is the second largest aviation services group in the world. Menzies operates in 209 airports. Its biggest competitor is Swissport. Seven or eight players control the market. Valuing it against other M&A deals in the industry Menzies Aviation is trading at a 50% discount. The business generates a lot of cash and does not need to borrow capital to grow. It is trading on a pre-tax P/E 8x. The company could be a beneficiary of Trump administration tax cuts.

As lead portfolio manager of Skagen Global Sept 2001-March 2010 Weintraub returned 20.6% annualised vs 4.6% for the index.

He looks for companies with restructurings, spinoffs and new products and requires 50% upside potential to invest. He calls himself a contrarian and looks for companies that are ignored rather than hated. He believes that 99% of the time the market is approximately right.

Long Taiheiyo Cement (TYO: 5233)

There are only 3 large players in the Japanese cement market. The company is trading at 5x cash flow and 1x P/B with a 22% return on equity. The cement market is depressed but the Japanese Olympics in 2020 will create demand. The company is not vulnerable to imported cement because Japan’s geographical position makes imports uneconomic.

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